9911796707
TMI Blog2017 (5) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of interest expenses. Your appellants submit that no interest bearing funds have been utilized to earn exempt income and that the said disallowance is not warranted and ought to be deleted. Without prejudice to the above, your appellants submits that no interest expenses have been claimed by the appellants during the year since the entire interest expenses have been capitalized to the work in progress account. Without prejudice to the above, your appellants submits that interest if any has to be considered for disallowance should be net of the interest income earned during the year and offered to tax. 2. The learned Commissioner of Income tax(Appeals) has erred in confirming disallowance of Rs. 11,45,953/- on account of expenses under Rule 8D(iii) being 0.5% of the average investments. Your appellants submit that the disallowance not warranted and ought to be deleted. Without prejudice to the above, you appellants submit that have claimed only Rs. 14,08,071/- as business expenditure and have taken rest of expenditure amounting to Rs. 3,75,96,844/- to work in progress and that the disallowance if any has to be out of Rs. 14,08,071/- which has been claimed by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the source of making investments in the current year.It is also submitted that no interest was claimed as an expenditure by the assessee as the same was transferred to WIP being the project specific expenses. It was submitted that in any case premium on redemption of debenture shall not be considered for disallowance. It was also argued that the interest to be considered for disallowance should be net of taxable interest income.With respect to disallowance of administrative expenses of Rs. 11,45,953/- is concerned, it was submitted that no expenses are incurred for earning exempt income. It was submitted that there are five investments made during the current year, out of which 3 are in mutual funds having a daily dividend plan. It was submitted that investments were made through brokers who were paid commission by these funds and nothing was paid by the assessee for making such investment. It was submitted that these dividends got re-invested itself and does not require any management. On redemption, proceeds got credited to the assessee's bank account directly. It was submitted that it does not require any management. Thus, it was contended that no expenditure were incurred fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n invested in business of the assessee. It was also observed by the learned CIT(A) that the assessee had not given any details to work out the direct nexus of the interest expenses related to the exempt income which was not includible in the total taxable income. The learned CIT(A) observed that the assessee's case is covered by sub section (3) of section 14A of the Act, because the assessee has claimed before Assessing Officer that no expenditure was incurred by it in relation to the exempt income which did not form part of the total income of the assessee. It was also observed by the learned CIT(A) that assessee's claim was covered by sub section (2) of section 14A of the Act because the Assessing Officer was not satisfied with the correctness of the claim in respect of the expenses incurred in relation to earning of exempt income. The learned CIT(A) observed that for the purpose of disallowance u/s 14Aof the 1961 Act, the reference in Rule 8D(2)(ii) is "Value of Investment' and not the share held as investment and hence even shares held as stock in trade shall also be covered for disallowance. It was the contention of the assessee that it has re-paid all interest bearing loans a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the paper book filed with the tribunal which is profit and loss account and other schedules and said no disallowance can be made on account of interest and hence the order of the Assessing Officer is erroneous. It was submitted that the assessee has not raised fresh loans during the year and the loans were raised in earlier years which were repaid by the assessee during the year under consideration. Our attention was drawn to balance sheet of the assessee which is placed at page-22 of the paper book filed with the tribunal. It was submitted that the assessee has mainly raised funds as advance for booking of flats to the tune of Rs. 79.30 crores which were invested in shares and securities, which are capable of yielding tax free income. It is also submitted that premium on redemption of debentures debited to P & L A/c cannot be disallowed under section14A as proceeds of debentures were not utilized for making investment in securities which are capable of yielding tax free income as these debentures were issued in earlier years while the investments were made in the current year and these debentures were redeemed during the year. The Ld. Departmental Representative on the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermination of the AO.The claim of the assessee that opening interest bearing loans which were in the form of debentures to the tune of Rs. 9.31 cores which were repaid during the year was not invested in shares and securities and hence no disallowance of interest / premium on redemption of debenture can be made u/s 14A of the 1961 shall also be verified by the AO in de-novo proceeding. The Assessing Officer had also made disallowance for administrative expenses under rule 8D(2)(iii) of Income tax Rules 1962 r.w.s. 14A of the 1961 Act being 0.5% of the investments. As held by us in this order earlier, that investments in debentures made by the assessee which give rise to taxable interest shall not be considered as part of 'Investment' for making disallowance u/s 14A of the 1961 Act, which shall be considered by the AO before making disallowance. It is also observed that the assessee is claiming that the other expenses debited to P&L account are in the nature of administrative expenses and the assessee has claimed that same is debited to the work-in-progress account for which necessary details were submitted and hence claim is made that no disallowance should be made u/s 14A of the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k in progress it has neutralized the expenses account on the debit side of Profit and Loss account. We have observed from the perusal of the audited financial statement of the assessee that the "investments" of Rs. 45.83 crores are held as 'investment' and not as 'stock in trade' and hence the issue of applicability of section 14A of the Act to 'stock in trade' do not need require adjudication by us. As per section 14A of the Act where any expenditure is incurred by the assessee in relation to the income which is not includible in total income of the assessee such expenses shall not be allowed as expenditure. Thus, disallowance of such expenditure incurred in relation to earning of income which does not form part of total income under provisions of this Act shall be computed having regard to accounts of the assessee as provided in section 14A(2) of the Act. Hon'ble Supreme Court in a very recent decision pronounced on 8th May, 2017 in the case of Godrej & Boyce v. DCIT (Civil appeal No.7020 of 2011) wherein the Hon'ble Supreme Court has upheld the disallowance of expenditure incurred in relation to earning of income which is not includible in the total income as is contemplated ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
